New Law Shines Light on Beneficial Ownership and Identifying Risk

Few things in the area of regulatory compliance are as important as knowing the true identity of one’s own customer base. However, this essential aspect of financial governance has become increasingly complicated (and costly) for financial institutions small and large in recent years. Under the Bank Secrecy Act, banks and other covered financial service providers are required to collect and verify specific information about the beneficial ownership structure of entities at the time of account opening. With financial criminals, foreign operatives, politically-exposed persons (PEPs) and others often seeking to disguise the origins of their wealth, the Financial Crimes Enforcement Network’s (FinCEN) Customer Due Diligence (CDD) Final Rule increases financial transparency in an effort to prevent the aforementioned groups from abusing the system to launder their ill-gotten funds. Today, a beneficial owner is defined as each individual with 25% or more of the equity interests in a legal entity, whether directly or indirectly, and an individual who controls said legal entity.² Legal entities include corporations, limited liability companies (LLC’s), general partnerships, limited partnerships, business trusts, other entities created by filing with a state office, and any similarly formed entities under the laws of a foreign (to the United States) jurisdiction. As of May 11, 2018, all financial institutions have been required to collect and verify pertinent information on individuals meeting said definition, as well as develop individualized risk profiles, maintain and update customer information, and identify and report suspicious transactions related to said accounts in a timely manner.

Employing a risk-based approach to managing CDD requirements has become the standard across the financial industry, as the ability to effectively mitigate risk is an important step in staying compliant with continually-updating government regulations. This process begins with having a formal, written Customer Identification Program (CIP) in place that accounts for beneficial ownership and is compliant with general recordkeeping and identify verification processes (including the collection of customer name, date of birth, address, and identification number). When financial institutions take businesses and entities on as clients, it is often a challenging undertaking to sort through a company’s oft-complex ownership layers and hierarchies to gain a better idea of whom exactly they are dealing with, and as such, avoid taking on unnecessary risk and potential penalties for their shortcomings in this regard. Yet even with increased awareness of the importance of these crucial processes in the financial sector, it can still be a struggle to actually identify true ownership within a shell company, with standards for reporting and overall transparency varying across international borders/areas of incorporation.

Creating further concerns for American financial institutions, specifically those with fewer resources at their disposal, was a recent expansion of BSA coverage to set minimum standards for AML/CFT programs moving forward. In arguably the most significant banking reform measure seen since the passage of the USA Patriot Act of 2001, the Corporate Transparency Act (CTA) is expected to provide a boon to federal authorities attempting to locate the proceeds of illicit finance both domestically and abroad. Tucked into the heralded National Defense Authorization Act (NDAA) passed on December 31, 2020, the CTA addresses many of the major loopholes in current AML regulation that have been the subject of conversation across the financial sector for the past decade. This measure will require certain companies to report beneficial ownership information directly to FinCEN, with the agency maintaining a private beneficial ownership registry – though FinCEN will be authorized to share information with other financial institutions, federal and foreign law enforcement authorities, and regulators under certain circumstances.  Most notably, the Act would also make the willful failure to report beneficial ownership information or the willful reporting of false or fraudulent beneficial ownership information a violation of law that can potentially result in civil and criminal penalties, including up to ten years imprisonment,⁷ while increasing whistleblower rewards for the provision of useful information leading to subsequent BSA/AML enforcement actions. Additionally, the Act will continue to bridge communications between federal regulators and the private sector with respect to the systematic review of previously-filed SAR’s of interest and in discussing specific trends with respect to suspicious activities. The game-changing Act in its entirety can be found here.

It goes without saying that this measure will go a long way towards strengthening current AML controls and limiting the influx of dirty money into the American financial system through shell companies. It also can create new headaches for financial firms in identifying and reporting potentially suspicious beneficial ownership structures. To meet these demands and simplify organizational workflows, Global RADAR, a leader in client onboarding and enhanced customer due diligence solutions for financial providers across the globe, came onto the scene and simplified the way financial institutions verify their customers. With the ability to instantly verify up to 250 million businesses and 4.5 billion worldwide, Global RADAR can quickly and easily scan for any adverse media profiles, appearances on global watch, sanctions and PEP lists, and scope out notable relationships while automating the risk rating process across an entire client portfolio with just the click of a mouse. With this advanced scanning also comes full transparency on beneficial ownership and protection from anyone looking to use your financial institution for laundering money. Global RADAR also sorts these scans with an ownership tool that maps out the distinct layers of ownership and identifies all beneficial owners, cutting costs and reducing risks of human error exponentially. In today’s world of evolving legislation, Global RADAR solutions provide peace of mind to the modern financial institution.

Weekly Roundup

Boeing Charged With Fraud Conspiracy, To Pay $2.5 Billion

 The Boeing Company, the world’s largest aerospace company and leading manufacturer or commercial jetliners, recently entered a deferred prosecution agreement (DPA) with the U.S. Department of Justice to resolve criminal charges of conspiracy to defraud the Federal Aviation Administration’s Aircraft Evaluation Group (FAA AEG) in connection with Boeing’s troubled 737 MAX airliner. As part of the agreement, Boeing will pay a total criminal monetary amount of over $2.5 billion consisting of $243.6 million in criminal monetary penalties, compensation payments to Boeing’s 737 MAX airline customers of $1.77 billion, and the establishment of a $500 million crash-victim beneficiaries fund to compensate the heirs, relatives, and legal beneficiaries of the 346 passengers who died in the Boeing 737 MAX crashes of Lion Air Flight 610 in 2018 and Ethiopian Airlines Flight 302 in 2019.¹

The charges come following a probe into the controversial crashes, which exposed both “fraudulent and deceptive conduct” by Boeing employees – specifically two of its 737 MAX technical pilots who withheld critical information regarding the aircrafts’ Maneuvering Characteristics Augmentation System (MACS), a system that impacts the plane’s comprehensive flight control system, from the FAA. Additional investigations into the cause of the fatal accidents determined that the aforementioned maneuvering augmentation system may have played a key role in the tragic events that transpired. Compliance Week writes “because of the pilots’ deception, a key document published by the FAA AEG lacked information about MCAS and, consequently, so did airplane manuals and pilot-training materials for U.S.-based airlines.”³ Under the DPA, Boeing will continue to cooperate with the DOJ’s fraud department in ongoing and future investigations, and has also agreed to strengthen its compliance program and submit annual reports to the DOJ regarding the status of its ongoing remediation efforts.

UK Levies Record Fine Over AML Breach

 The United Kingdom’s Revenue and Customs (HMRC) department recently announced a record £23.8 million (US$31.27 million) fine issued to a money transfer business for breaching current anti-money laundering regulations aimed at curbing illicit finance in the region. MT Global Limited was hit with the fine from the UK’s tax authority after significant breaches” of money-laundering regulations between July 2017 and December 2019 “relating to risk assessments and associated record-keeping; policies, controls, and procedures; and fundamental customer due diligence measures.”⁴ The firm, which offers financial services through a number of banks in 81 countries throughout the world, has been the subject of widespread criticism of late secondary to leaving the UK economy susceptible to an influx of ill-gotten funds due to its failure to follow today’s standard operating procedures with respect to compliance.

The Organized Crime and Corruption Reporting Project notes that between 2019 and 2020, the UK’s non-ministerial department completed roughly “2,000 interventions on supervised businesses, issued penalties totaling £9.1 million ($12.37 million) and stopped 89 non-compliant businesses and individuals from trading”⁴ while recouping £166 million ($225.68 million) in proceeds from crime, financial and other.

U.S. Issues Sanctions Over Election Interference

 On January 11^th, the Trump Administration announced the imposition of sanctions against seven individuals, including several ex-Ukrainian officials, and four entities over their alleged interference in the 2020 U.S. Presidential election with respect to the relationship between the family of President-elect Joe Biden and a Ukrainian gas company.  Reuters writes that the U.S. Treasury Department “accused the seven individuals and four entities of involvement in a Russia-linked foreign influence network associated with Ukrainian parliamentarian Andriy Derkach” – a lawmaker and “active Russian agent” who was sanctioned by the U.S. government in September over accusations he tried to interfere in the 2020 U.S. election won by Biden.⁶

A statement released by the Treasury following the announcement read that “since at least 2019, Derkach and his associates have leveraged U.S. media, U.S.-based social media platforms, and influential U.S. persons to spread misleading and unsubstantiated allegations that current and former U.S. officials engaged in corruption, money laundering, and unlawful political influence in Ukraine.”⁵ Treasury Secretary Steven Mnuchin again condemned Russian disinformation campaigns that have threatened American democracy in years past, and vowed to continue to aggressively defend the integrity of the U.S. election process.

Citations

1. “Boeing Charged with 737 Max Fraud Conspiracy and Agrees to Pay over $2.5 Billion.”The United States Department of Justice, 7 Jan. 2021.
2. Frequently Asked Questions Regarding Customer Due Diligence Requirements for Financial Institutions. United States Department of the Treasury, 3 Apr. 2018.
3. Jaeger, Jaclyn. “Compliance Implications of Boeing $2.5B Fraud Settlement.”Compliance Week, 8 Jan. 2021.
4. Ljubas, Zdravko. “UK Issues Record Fine for Anti-Money Laundering Regulations Breach.”OCCRP, 8 Jan. 2021,
5. Macias, Amanda. “U.S. Sanctions Ukraine Officials Linked to Giuliani Ally for Meddling in 2020 Election.”CNBC, CNBC, 11 Jan. 2021.
6. Psaledakis, Daphne, et al. “U.S. Imposes Sanctions on Ukrainians over Election Interference.”Reuters, Thomson Reuters, 11 Jan. 2021.
7. Santangelo, Betty, et al. “Passage of Anti-Money Laundering Act of 2020 Includes Comprehensive BSA/AML Reform Measures.”Lexology, 7 Jan. 2021.